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Obama: the next Lula?

Some people may have noticed that the market has tanked even more since Obama was elected. The Dow has lost 14 percent since the election, and the S&P 500 and Nasdaq are also sharply off.

The Wall Street Journal points out that many investors are paralyzed by the idea that Obama will raise taxes in a down market, about the worst thing you can do for an economy. But I still have hope Obama will be pragmatic. When I think about Obama, I keep on thinking about Lula, the popular president in Brazil who started out as a wild-eyed radical and became a moderate, business-oriented centrist once he faced the realities of governing.

There are significant differences. The political culture of Brazil is very different than the United States. There is no real viable free-market political party, for example. Every party is, in terms of rhetoric, to the left of moderate Democrats.

But there are amazing similarities between Lula and Obama. Both grew up in broken homes. Obama has called himself a “mutt” — Lula has used similar terms to describe himself. Both rose in party politics — Lula in the union environment of Sao Paulo, Obama in the Chicago political machine. Both have extremely sharp elbows from dealing with multiple political rivals, both inside their movements and outside.

There are significant differences. Lula is not a mesmerizing speaker and actually uses a low-class Portuguese that Brazilians love to mimic. He is not nearly as well-educated as Obama. Lula has been around Brazilian politics for decades — Obama is relatively new to the scene. And the whole racial issue is not a factor in Brazil.

But the key similarity in my mind is the generalized panic that hit the international and local business community in 2002-2003 with the prospect of Lula’s election. The Brazilian stock market tanked. The real hit 4 to US$1 — it is now about 2.25 to 1 and hit about 1.75 to 1 over the summer — making Brazil one of the most expensive countries in the world for Americans to visit with dollars. But in 2002 and 2003, Brazil was one of the least expensive countries in the world for people earning dollars — right when I lived there. 🙂

Lula, with his ties to Communist groups and radical union past, was considered a huge risk. The fear was that he would nationalize entire industries and be a kind of Brazilian Hugo Chavez. And Lula did very little to dispel these notions while running for office. He said Brazil needed a huge change — the rich needed to be taxed more and wealth needed to be spread around.

But once Lula got in office he discovered that a lot of things the left wanted to change were not possible. Brazilian taxes on business were already obscenely high — it was literally impossible to find any new taxes to slap on businesses. (One study has shown that if Brazilian businesses actually paid all the taxes they are charged, they would pay 120 percent of their revenue in taxes, meaning they would have zero revenue — all of it would go to taxes. So naturally Brazilian businesses spend all their time trying to find ways not to pay the taxes they supposedly owe). In addition, Lula discovered that any huge government programs would bankrupt the country.

So, instead Lula actually cut some taxes and stimulated economic growth. Because of his pragmatic policies, he paid off foreign debt two years earlier than expected. He was overwhelmingly reelected and is still very popular in Brazil.

In terms of social policy, Lula has made some radical changes in Brazil. To the anger of the Catholic church and the growing evangelical community in Brazil, he is generally pro-choice and very pro-gay rights. The battle over social issues in Brazil is very similar to the one taking place in the United States, with Lula clearly and vocally on the side of the “liberals” in Brazil.

Sadly, I predict that Obama will publicly come out in favor of gay marriage sometime during his first term. Obama says he favors the repeal of the Defense of Marriage Act and was against Prop. 8. He is clearly the most pro-choice president ever elected.

As far as the Church is concerned, Lula has been a positive president. There has been no anti-Church backlash in Brazil, and several Mormon legislators have served in a variety of different government posts over the years. Brazilians are amazingly tolerant about religion (in the real sense), and Lula is no exception.

Clearly, the most pressing issue Obama will face is the economy. So far, all of his talk has been about rescuing various dying companies and issuing executive orders that contradict many of Pres. Bush’s executive orders. Lula did the same thing during his interregnum. Once he faced the realities of being in power rather than being in opposition, his policies did a 180-degree turn, at least when it comes to the economy. I hope the same happens with Obama.

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About Geoff B.

Geoff B graduated from Stanford University (class of 1985) and worked in journalism for several years until about 1992, when he took up his second career in telecommunications sales. He has held many callings in the Church, but his favorite calling is father and husband. Geoff is active in martial arts and loves hiking and skiing. Geoff has five children and lives in Colorado.

I think Obama’s signaled moderation. He’s a smart guy and whether you like his views or not he’s also fairly pragmatic and tends to be a consensus builder. Most importantly he’s disciplined in a way the Clintons never have been. He remembers 94 as well and what a backlash can do.

I also think Dan’s right in that much of the recent stock market fluctuation is the fact a lot of things, like GM and Chrysler, are still falling out. We really don’t yet know how bad the economy will get. Further this is a world recession and not just an American recession. A lot depends upon what happens in China, the EU and elsewhere.

That said I also think it’s undeniable there is nervousness about Obama’s plans. People are also worried about unions and the plans for card check. Uncertainty clearly affects the market and Obama simply hasn’t laid his plans out. I suspect these fluctuations will remain through February.

Of course Lula actually said he was a radical when he was running. Obama is a self-proclaimed moderate who has been accused of being a radical. It’s just possible that Obama will be a left-leaning centrist on economic issues because he is, you know, a left-leaning centrist on economic issues. When someone who more or less says “I’m a socialist” moves to the center, that’s a conversion. When someone who is a left-leaning centrist on economic issues takes steps to, for example, slightly shift the tax burden from the middle class to the wealthy, that’s no suprise.

Dan probably feels that the market wasn’t in enormous tech bubble when bush took office. Oh wait it was. Dan probably also blames Bush for 9/11. Hmmm, the biggest over evaluation of the stock market ever, and the worst physical attack the US has ever seen. Maybe Bush didn’t do too bad until…. wait for it…. wait for it… the Dems took congress and really started to screw things up.

“Some people may have noticed that the market has tanked even more since Obama was elected. The Dow has lost 14 percent since the election, and the S&P 500 and Nasdaq are also sharply off.”
Bad timing on this paragraph.
Check the stock movement today.

Dan, on Ahmadinejad, you’re tilting at windmills if you think conservatives think him the power in Iran. Who is saying that?

Emma, while Obama claims to be a moderate I think that label is about as silly as labeling him the most liberal person in Congress. One sees him moving to the right but I think that is because he’s a pragmatist and recognizes that incrementalism is more successful then revolution. Further he recognizes that the biggest problems right now are the world recession and the wars in Afghanistan and the Middleast. There’s only so much he can do.